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Saudi Arabia likely to make biggest investment in Pakistan

Updated February 11, 2019

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DUBAI: A record investment package being prepared by Saudi Arabia for Pakistan will likely provide welcome relief for its cash-strapped ally, while also addressing regional geopolitical challenges, analysts say.

At the heart of the investment is a reported $10 billion refinery and oil complex in the strategic Gwadar Port on the Arabian Sea, the ultimate destination for the massive multi-billion dollar China-Pakistan Economic Corridor.

Two Saudi sources have confirmed that heir apparent to the Gulf kingdom’s throne, Crown Prince Mohammed bin Salman, will visit Islamabad shortly.

Several deals are expected to be signed during Crown Prince Mohammed’s visit to Islamabad shortly

And a number of major investment deals are expected to be signed during the visit, officials from both countries have said.

Riyadh and Islamabad, decades-old allies, have been involved for months in talks to hammer out details of the deals in time for the high-profile visit.

“The outcome of the talks so far has been very positive and this is going to be one of the biggest-ever Saudi investments in Pakistan,” a Pakistani senior finance ministry official said.

“We hope that an agreement to this effect will be signed during the upcoming visit of the Saudi crown prince to Pakistan,” said the official, requesting anonymity.

The Wall Street Journal reported last month that both Saudi Arabia and the United Arab Emirates, Islamabad’s biggest trading partner in the Middle East, have offered Prime Minister Imran Khan some $30bn in investment and loans.

Saudi lifeline

Riyadh investments are expected to provide a lifeline for Pakistan’s slumping economy which was downgraded in early February by S&P ratings agency from a B to a B-, Saudi economist Fadhl al-Bouenain said.

“Saudi investment to Pakistan comes within an economic aid package aimed at relieving the stress of external debt and a shortage of foreign currency, besides boosting the sluggish economy,” Bouenain told AFP.

The Opec heavyweight also aims to achieve strategic and commercial goals with investments in infrastructure and refinery projects, he said.

Saudi Arabia and its Gulf partner, the UAE, have already deposited $3bn each in the State Bank of Pakistan to help resolve a balance of payments crisis and shore up its declining rupee.

They have also reportedly deferred some $6bn in oil imports payments as Islamabad has so far failed to secure fresh loans from the International Monetary Fund.

PM Khan has already visited Riyadh twice since taking office in August, and in October attended a prestigious investment conference widely boycotted by other political and economic figures after the murder of journalist Jamal Khashoggi.

Mr Khan also visited Saudi rivals Qatar and Turkey, as well as China seeking investments.

“One of the goals for Saudi Arabia expanding investments in refining worldwide is to secure market share and sustainable exports in the face of international competition,” Bouenain said.

Saudi Energy Minister Khalid al-Falih visited Gwadar in January and inspected the site for the proposed oil refinery at the deep sea port.

He was quoted by the local media as saying the kingdom was studying plans to construct a $10bn refinery and petrochemicals complex in Gwadar.

Cutting supply times

Like most oil suppliers, the world’s top crude exporter has been investing heavily in refinery and petrochemicals projects across the globe to secure long-term buyers of its oil.

A pipeline from Gwadar to China would cut the supply time from the current 40 days to just seven, experts say.

Developed as part of China’s Belt and Road Initiative with investments worth some $60bn, Gwadar is being billed as a regional industrial hub of the future, easily accessible for Central Asia, Afghanistan, the Middle East and Africa.

“Pakistan needs a rich partner to enter as a third party besides China, capable of injecting needed cash,” Bouenain said.

But so far China has rejected other partners for the corridor that seeks to connect its western province Xinjiang with Gwadar, including Saudi Arabia and the UAE, said James M. Dorsey, a senior fellow at Singapore’s S. Rajaratnam School of International Studies.

This is despite calls by Imran Khan “for the Chinese investments to be restructured to include agriculture and job-creation sectors and not only in infrastructure”, Dorsey told AFP. Any Saudi investment in Gwadar will also have geopolitical dimensions, Dorsey said.

Iran late last year inaugurated Chabahar — just 70km from Gwadar Port — which provides a key supply route to landlocked Afghanistan and allows India to bypass Pakistan.

India has seen Chabahar as a key way both to send supplies to Afghanistan and to step up trade with Central Asia as well as Africa.

But Riyadh is not expected to get involved in any Indo-Pakistani rivalry as the kingdom also has major strategic energy deals with India, where demand for oil is growing fast.

Indeed in April, the Saudis signed a $44bn deal to build a huge refinery and petro­chemicals complex in western India.

Published in Dawn, February 11th, 2019